Will usage-based pricing kill the streaming video star?

Streaming services like Netflix and Hulu are attracting more eyeballs every month, stealing attention away from traditional TV. But cable providers could soon fight back, by basing their pricing on how much a given user streams every month.

comScore reported earlier this week that viewers watched a record-high 42.6 billion videos online in October, with YouTube leading the way. Viewers watched an average of 21 hours of online video a piece during the month, which is a far cry from the four or five hours a day that they watch of broadcast TV. But its a 50 percent increase from the 14.5 hours of video that online viewers averaged in December 2010.

Pay TV services finally on the decline?

As online viewership has increased, there’s evidence that it’s finally causing some viewers to avoid paying for cable. Credit Suisse analyst Stefan Anninger forecast in a research note this week that the multichannel video industry will lose 200,000 subscribers in 2012, which is a big about-face from the 250,000 new subscribers that he previously estimated cable, satellite and IPTV providers would gain next year. The reason? Economically driven “cord avoiders” who can’t afford cable or satellite TV, as well as “cord nevers” — young people who get their first homes but choose not to pay for TV, choosing to stream video over broadband instead.

That’s led to a new round of concerns about the future of the pay TV industry — and what cable companies might due to combat potential threats from streaming competitors. And it’s prompted more speculation that an increased focus on broadband could lead cable companies to institute usage-based pricing that links the amount of bandwidth users consume with the amount that they pay. The latest comes from Sanford Bernstein analyst Craig Moffett, who said in an interview with Bloomberg that at least one cable provider will institute that type of pricing model over the next year.

The specter of usage-based pricing

For years, usage-based pricing has loomed as a threat to the mostly unlimited broadband Internet plans that users subscribe to today. While cable companies like Comcast have long instituted caps to limit the amount of data some of its users consume, they’ve stopped short of charging more based upon customer usage. But now more than ever, it seems like operators are finally ready to pull the trigger on usage-based pricing.

Killing two birds with one pricing model

Not only do services like Netflix clog their pipes, but they’re also competing with traditional TV services. For that reason, usage-based pricing is being promoted as a way to kill two birds with one stone: By effectively raising rates that customers pay to access streaming services, the effect could be less competition with their video services, while also possibly decreasing the amount of traffic that goes over their pipes.

Services like Netflix and Hulu Plus are attractive in part because they’re cheap: At $7.99, both services are significantly less expensive than the $70 on average that cable subscribers pay. But if more streaming means higher broadband prices, those services don’t look as cheap.

There are other reasons for cable companies to pitch broadband services, of course. They have better margins than traditional video services, and that profitability isn’t threatened by content costs that continue to rise. It’s also a key differentiator from satellite competitors who can’t bundle their own Internet services with TV packages. But as streaming video continues to gain consumer adoption, carriers will be looking to slow that growth and make competing online options less attractive.